IRS Rules on Testamentary Power of Appointment

In Private Letter Ruling 201444003, the Internal Revenue Service determined that a testamentary power of appointment (POA) did not constitute a general POA under IRC section 2041.  Furthermore, the IRS determined that the existence or exercise of a grandchild’s POA to appoint trust principal and accumulated or undistributed income would not cause the value of the trust property to be included in the grandchild’s estate.

Under Section 2041(a)(2), the value of a general POA created after Oct. 21, 1942 is generally includible in a decedent’s gross estate.  A general POA means a power that is exercisable in favor of a decedent, his estate, his creditors or his estate’s creditors.  Treasury Regulations Section 20.2041-1(c)(1)(a) provide that a POA isn’t a general POA if, by its terms, it’s exercisable in favor of one or more designated persons or classes other than the decedent or his creditors, his estate or his estate’s creditors.

See Dawn S. Markowitz, Testamentary Power of Appointment, Wealth Management, Nov. 3, 2014.